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This is not advice. Items herein are general comments only and do not constitute or convey advice per se. The information contained in these articles is for guidance only and should not be relied upon without obtaining professional advice having regard to your direct circumstances.


Review to revive and survive

Many small businesses are under-insured or not even covered for some risks, exposing them to potentially devastating effects.

Your business has achieved consistent growth, a great reputation and an established position in its selected market. But are you equipped to continue this success in an environment that continues to get tougher for the small business owner? As your business has grown, your risks have increased. Has your insurance needs grown too?

Although 15 per cent of small business owners admit to being either moderately or significantly underinsured, it’s seriously alarming that of the 85 per cent who believe they are adequately insured, 13 per cent don’t have fire insurance and 20 per cent don’t have burglary insurance. Not only that, but a staggering 65 per cent aren’t covered for business interruption or loss of profits.

According to the latest Cameron research, most small business owners just keep buying the same amount of insurance they bought last year. They do this without considering all the changes that have occurred in the market and to their business. More often than not, they end up unaware of what else may be required.

The most concerning aspect of these findings is the potential for small business to be under-insured due to the simple fact that they are unaware that their cover is insufficient until they have a claim. Insurance companies now understand the role they play in reassessing customers’ insurance needs and exploring all risk areas, including increased exposure resulting from business growth.

You have to work with your customers and make recommendations to help ensure they are appropriately covered. It’s our responsibility to at least give them the information so that they can make an educated decision on their insurance coverage.

An insurer should insist on reviewing and reassessing all their small business clients’ insurance policies, to ensure they include changes like business growth. Reviews can be conducted through independent assessors and quantity surveyors who will determine the total current replacement cost of a business, including the physical structures, fit-out, machinery, stock and even the car park.

According to research by McLarens Young International (MYI), many small businesses don’t realise just how much the costs of building materials and labour have increased, and are forgetting to allow for factors like removal of debris, government zoning and engineering fees.

Recently a review showed one of our clients that the replacement costs of their business had increased substantially – from $462,000 to $2.3 million – not only as a result of growth in their business, but because of the increased cost in building supplies and labour.

The client was a family owned furniture retailer who had worked hard to build a successful business over more than 25 years. These recommendations helped them understand what was truly at stake in the event of a tragedy, and explained where their policy needed to be updated. Customers deserve to know that their premiums are based on independent, reliable and accurate assessments of their risk, reinstatement time, and cost.

Small business should also consider their turnover and expenses to see what the effect would be if they couldn’t operate for an extended period of time.

Many small businesses don’t think about the need to preserve cash-flow in situations where their business is no longer able to trade following a major calamity.

They need to also consider how a major loss would affect them during busy trading periods such as Christmas or Easter, when some businesses typically have more stock on hand, higher sales and increased costs like staff wages. The reality is that 70 per cent of small businesses affected by major loss don’t recover. Limited cash-flow can have major catastrophic effects on small businesses, with many not having the money to pay their bills, or pay their staff, while they’re out of action.

Business interruption insurance ensures that small businesses can survive periods of major trading disruption by providing income to pay ongoing expenses like rent and wages until the business reopens its doors. So why is it that only 31 per cent of small businesses have business interruption insurance?

A review of another of GIO’s small business clients showed them where these gaps existed in their cover after their business had experienced a period of growth.

Having this information helped the customer to understand what was truly at stake in the event of any loss, and explained the associated increase in premium.

When fire damage caused that client’s business to close around a year later, the owner was most thankful for the additional cover, which meant he was able to get back on his feet and had an income while waiting to reopen his business. These customers truly understand their insurance requirements, and realise how they can protect the future of their business and their employees, the majority are very receptive and appreciative.

Gerard McDermott
My Business, November 2008


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